TaxTMI 
TaxTMI 
2019 (12) TMI 498
X X X X Extracts X X X X
X X X X Extracts X X X X
....,760/-. The AO after following the due procedure, completed the assessment u/s 143(3) of the IT Act 26/11/2007. 2.1 The elaborate reasons of the AO to reopen the assessment u/s 147 are as under: "2.1The assessee company M/s Elem Investments Pvt. Ltd., is a company incorporated by the family members of the promoters of M/s Sat yam Computer services limited. The Chairman of M/s Satyam Computer Services Ltd Sri B. Ramalinga Raju had suo-moto made a confessional statement On 7th January, 2009, in his letter sent to the Board of Directors (with a copy marked to SEB) that the books of accounts of SCSL have been fudged for the last several years to manipulate the book results. He further confessed that the revenues and profits were manipulated by falsification of accounts for the last several years. The relevant extract of the confessional mail issued by Sri B. Ramalinga Raju is reproduced below: "It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice: 1. The balance sheet carries as of September 30, 2008 a) Inflated (non-existent) cash and bank balance of Rs. 5....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an Rao, the Chairman of the Audit Committee of SCSL Shri M. Rammohan Rao forwarded the email to Shri T.R. prasad and Dr. V.S. Raju saying that he had forwarded the same e-mail to Shri B. Ramalinga Raju requesting him to give his response to the Audit committee at its next meeting which was to be held on 29'" December, 2008. He also told the Audit committee that he would make a presentation on this Issue in the next Board meeting to be held on December 29, 2008 which did not take place. Shri Krishna G. Palepu even after resigning had followed up the issue with the auditor and had asked the remaining directors to pursue the issue to bring it to a logical conclusion. Knowing the seriousness of the case and chances of getting caught, if the bank balances were verified by an independent investment banker, snr! B. Ramalinga Raju through his CFO, Shri V. srinivas asked shri G. Ramakrishna, the Finance Head, to ascertain the amount of falsification. And then followed the confessional mail of the then Chairman of M/s SCSL on 7" of January, 2009. 2.3 It is to be noted here that the above confessional statement by the then Chairman of M/s SCSL, was not in a way suo-moto ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under section 143(3) of the I.T. Act and a) the revelations in the confessional statement of Sri Ramalinga Raju, the facts of fudging of accounts; b) the real and effective control over the investment & front companies of Sri Ramalinga Raju and his family members; c) that there were variations in the quantum of income and a assets/liabliities of SCSL and the investment and front companies as revealed in the confessional statements etc. which came to light in the investigations; were all not known to the Assessing Officer at the time of making the original assessments u/s 143(3). The fraudulent transactions revealed by Sri Ramalinga Raju, apparently will have a bearing on the financial affairs of the group companies and their consequent income and assets position in view of the complex and circuitous nature of transactions between the group entities. 2.2. In view of the above background, the AO observed that the assessment Is reopened under section 147 with the approval of the CIT (Central), Hyderabad and notice under section 148 was issued on 02.04.2009. Vide this office letter dated 21.07.2010 a detailed questionnaire calling for certain information w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ition of an amount of Rs. 20 crores narrated at para 2.2.3, it is a fact that the books of the appellant as well as M/s SCSL did not disclose this transaction. 5.2 At the stage of issue of notice u/s 147, as per law, all that was required was a bonafide belief or a reason to believe about escapement of income. This belief and its bonafide were certainly there in the background. Thus, the issue of notice is therefore upheld. 5.1 As regards the addition of Rs. 12.59 crores on account of deemed dividend u/s 2(22)(e), the CIT(A) deleted the same. 5.2 As regards remaining additions on account of unexplained loans and advances of Rs. 20 crores and with regard to separation of interest income, he observed as under: "8.1.1 The back ground and the reasons for making the addition were narrated briefly in para 2.2.3. To recapitulate the forensic audit in the case of Satyam computers has come across credits of four high value cheques totalling Rs. 20 crores in the City Bank Account. The amount of Rs. 20 crores had come from three related companies namely- Elem Investments, Fincity Investments and the assessee appellant MIs High Grace Investments. However, the f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to gather the details and establish clearly the amount actually advanced by it. It is further directed that if no details are filed and if it is still not possible to ascertain the actual break up of this amount of Rs. 20 crores, then the AO is directed to assess Rs. 12.5 crores as against Rs. 20 crores in the hands of M/s High Grace Investments pvt Ltd and an amount of Rs. 4.75 crores in the hands of M/s Elem Investments and Rs. 2.75 crores in the hands of Fincity Investments. 9.0 Findings regarding separation of interest income and assessing it as income from other sources and treating the income from trading in shares as speculation income. 9.1 Prima-facie, from the asst. order, it appears that the AO is treating the activity of trading in shares as speculative transaction. This is incorrect as by this definition of the AO, there cannot be any trading in shares by any assessee other than doing speculative transactions. The AO referred to Section 73 and explanation to section 28 in isolation. Section 43(5) defines speculation. It Is basically a contract settled otherwise by actual delivery or transfer of the commodity or scrips. In fact, even this definition has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess as underwriters and brokers of stocks, shares and other securities and to provide investment and merchant banking services including managing the issue of capital or raising of resources providing Register or Transfer Agency Services and Dara Processing facilities and supporting and related services and undertaking and executing any contract involving computer based information system, feasibility study, software development, systems and programming, data analysis and research and development and providing counselling, advisory or consultancy services. " Thus, earning of interest income is part of its business income and such income cannot be separately treated as income from other sources. The AO is therefore directed to compute the income accordingly, subject to quantification of actual advance given to MIs SCSL outside the books while giving effect to this appeal order." 6. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: "GROUNDS OF APPEAL 1. The Order of the Commissioner of Income Tax (Appeals)-12, Hyderabad [CIT(A)] in sustaining the assessment made u/s.143 r.w.147 of the IT Act, 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 5. The learned CIT(A) failed to note that there was no rational and intelligible nexus between the reasons and the belief and the inescapable conclusion is that the ITO did not have reason to believe that any part of the Income had escaped assessment and such escapement was by reason of the omission or the failure on the part of the assessee to disclose fully and truly all material facts and therefore the Notice issued u/s.148 to reassess the Appellant's is to be struck down as invalid and much so the reassessment . 6.,.. Without prejudice to any of the aforesaid grounds the learned CIT(A) having found that no specific additions were made on the basis of reasons recorded ought to have held that the addition of Unexplained Advances at Rs. 20 Crores, deemed dividend at Rs. 12,41,03,588 and disallowance u/s 14-A at Rs. 42,92,125 could not be made and much less the recasting of computation of income statement and consideration of income from other sources separately and business income as income from speculation. The order of the CIT(A) at Paragraph 8.1.5 in giving a direction to assess a sum of RsA.75 Crores in the hands of the Appellant as unexplained loans a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctors with a copy marked to SEBI dated 07/01/2009. He, therefore, submitted that the AO has not expressed any opinion on the issue and hence, the change of opinion does not arise. Thus, he submitted that the AO has issued the notice u/s 148 validly and assessment was completed u/s 143(3) rws 147 of the Act and further submitted that the case law relied upon by the ld. counsel for the assessee in the case of CIT Vs. Kelvinator of India Ltd. (supra) has no application to the facts of the case of the assessee. 9. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. 9.1 As regards the issue of reopening of assessment raised in ground Nos. 1 to 5, on perusal of the reasons recorded by the AO, we noticed that the AO has issued notice within 4 years and AO has recorded detailed reasons and came to the conclusion that there is an escapement of income on the ground that falsification of books of account and also manipulation of accounts for the last several years as well as the statement given by the Chairman Shri Ramalinga Raju and material evidence, which are necessary to be considered, were not at all....